[Congressional Record (Bound Edition), Volume 155 (2009), Part 8]
[Senate]
[Pages 10668-10671]
[From the U.S. Government Publishing Office, www.gpo.gov]




                      MORTGAGE FORECLOSURE CRISIS

  Mr. DURBIN. Madam President, later this week, the Senate is going to 
consider legislation that I have been working on for 2 years. Two years 
ago, it was apparent to me that we were facing a mortgage foreclosure 
crisis in America. It was a crisis which had just begun, but it was 
obvious there were many victims. I had no idea when I introduced this 
legislation that we would be standing here 2 years later and the state 
of the American economy we would face.
  The Senate will consider legislation I have offered to help families 
save their homes and avoid foreclosure. When we consider amendments to 
the bill, the key number to remember is 1.7 million

[[Page 10669]]

families--1.7 million. That is the number of families we will either 
give a chance to save their homes or allow them to be thrown out in the 
street, depending on how the vote turns out. My amendment will help 1.7 
million families avoid foreclosure. It will make a small change to the 
Bankruptcy Code to provide these families with a little bit of 
leverage--leverage they do not have today.
  I had a meeting on Friday in my office in Chicago. Groups came from 
all over the city of Chicago and told me about the mortgage foreclosure 
crisis in that city. I love that town. I am honored to represent it. 
But there are neighborhoods that are in serious trouble and not because 
folks aren't keeping up their homes--they do. They have fierce pride in 
their little bungalows and homes they maintain. It is not because they 
aren't proud of their churches they attend and temples and synagogues. 
That is always a part of life in most cities, and it certainly is in 
Chicago. And not because the kids aren't out playing on the playgrounds 
and reflecting the values of their families. No, it is usually because 
there is one house on the block that has gone into foreclosure.
  You may think to yourself: So what. That is only one house. But 
imagine in your own hometown, in your own neighborhood, if that house 
next door went into foreclosure. Imagine it was vacant, with plywood on 
all the windows, and you started noticing that not only was the lawn 
not being tended to, it was becoming a vacant lot for trash to 
accumulate. Then the word was out that there were vandals who were 
stripping the copper tubing and piping out of that house. The next 
thing you know, there are rumors about drug gangs using it late at 
night.
  That is the reality of these neighborhoods, and it is the reality of 
mortgage foreclosure. It is not just the economic loss for the 
neighbors. It is the loss of a neighborhood spirit. That is what 
foreclosure brings us.
  You say to yourself: You know that family that was in there, they 
just made a terrible decision on a mortgage. Some of them did. Some of 
them were misled into those terrible decisions.
  Have you ever been to a closing to buy a home? Do you remember that 
stack of papers they put on the table in front of you? They would turn 
the corner over and they would say: Keep signing.
  What is this?
  Oh, it is a Federal Government form. The banks looked at it; the 
realtors looked at it; everything is fine. Keep going. Here is a check. 
Sign this. Now here is your payment book. In 60 days make your first 
payment.
  Secreted in some of these documents were provisions that a lot of 
people did not understand. Sometimes the whole process was a fraud. In 
the worst of times, many of these mortgage brokers were saying to 
people:
  How much money do you make?
  Oh, $50,000, $60,000.
  Oh, that is great. We will put you in a nice little house, we will 
give you an adjustable rate mortgage and the house will go up in value 
and everything will be fine.
  They call them no-doc mortgages. That meant no documentation. The 
borrower, the person buying the home, did not have to produce a single 
document to indicate their income or net worth.
  We have a little provision in the Department of Treasury, Internal 
Revenue Service. If you spend a few dollars and fill out a form, we 
will verify what your income is so the people who are loaning the money 
are going to have verification. That was not even asked for. Why? 
Because the folks who were doing these deals wanted to get them done 
and get out of town and they did. They left behind a mess in community 
after community, in city after city.
  Now, as these people face foreclosure in their homes, many of them do 
not know where to turn. They go back to the bank and they say to the 
bank: Come on, I understand I can get a low interest rate now. Maybe I 
can stay in this home. I am not going to default and I will not lose 
the home. It will not be foreclosed.
  Do you know what the banker tells them? The banker says: Oh, we just 
did a credit rating on you and it turns out you are upside-down. You 
owe more money on your house than it is worth; therefore, your credit 
rating is too low. Therefore, we cannot renegotiate the mortgage, 
therefore you are going to face foreclosure.
  That's the Catch-22 reality of mortgage foreclosure today.
  I told a story to some people the other day. I got on an airplane to 
fly from Washington to Chicago. I do that a lot. A stewardess, flight 
attendant, said she wanted to talk to me. After they served the coffee 
and soda, the drinks on the plane, she came down and knelt down in the 
aisle next to me. People are looking around: What is this all about?
  She said: Senator, I am a single mom. I have three kids. I have been 
a flight attendant on this airline for 20 years. I go to work every day 
and work real hard. I have a house just outside of Chicagoland area, in 
the metropolitan area, and I have a 7-percent mortgage on it and I 
cannot do it. I can't make the payments. But I know they are offering 
mortgages now that are down in the 4- and 5-percent range and I think I 
can swing it. But they will not sit down and talk to me. Nobody will 
talk to me. I have to default on my payment and go into foreclosure 
before anybody will sit and talk to me.
  That is the reality of what housing is in many places across America. 
So, 2 years ago, I came up with this idea of changing the Bankruptcy 
Code. Currently, under the Bankruptcy Code, if you are facing 
bankruptcy and you own several pieces of real estate--a home, a 
vacation condo in Florida, a ranch or a farm--and you go into 
bankruptcy, the bankruptcy judge can take a look at the mortgage which 
is in foreclosure for your condo in Florida, and that bankruptcy judge 
can say: The fair value of that condo is X. Therefore, we will reduce 
the principle on the mortgage to X. We will change the interest rate, 
and we believe you can make the payments. You can keep your condo. The 
same for your farm, the same for your ranch. But your home? No deal. 
The bankruptcy court cannot even consider changing the mortgage terms 
on your home.
  That has been in the law for awhile. I think it is a terrible 
provision. The people who want to protect that provision? Many of the 
banks that brought us this crisis, many of the banks that have been 
given billions of dollars. It's not all of them. I will tell you the 
good guys later on. But many of these banks that have benefited from 
the hundreds of billions of dollars taxpayers have put on the table 
have said, when it comes to a bad mortgage and a foreclosure, tough 
deal. They made a bad decision. They have to pay for it.
  Really? These bankers who were raking in the billions of taxpayers' 
dollars because of their bad deals and their rotten portfolios have 
said to these poor people facing foreclosure: Tough. Tough. You should 
have known better. You should not have made that mistake. You should 
have shown the wisdom and foresight that we show in the banking 
business.
  How about that for turning the tables?
  That is what this debate is all about. I don't want to see more 
people in bankruptcy. That is not a good outcome. But if the lenders of 
these mortgages know that at the end of the road, after everything else 
has gone on, there may be a bankruptcy judge who will sit down and look 
at that mortgage and say to that flight attendant: You know what. You 
are offering mortgages at this bank for 4 and 5 percent. You offer this 
woman 4.5 percent. She can make the payments and keep her home and the 
court is going to order it.
  If they knew that could happen at the end of the day, I think those 
bankers would be in a position where they would want to sit down before 
it occurs and try to avoid the foreclosure, avoid the terrible outcome 
for the family and the neighborhood.
  Mr. President, 1.7 million American families could save their homes 
with my amendment. I didn't come up with that figure; the analysts did. 
It makes a very small change in the Bankruptcy Code which could result 
in that. If it passes, it is not just a family who wins

[[Page 10670]]

or the neighbors who win, the banks win. Do you know what it costs a 
bank to take a home through foreclosure? A minimum, I am told at a 
hearing I held, of $50,000. That is what they lose for all the legal 
fees and things that are involved in a foreclosure on property. Then, 
do you know what happens to 99 percent of the properties that go into 
foreclosure? Do you know who owns them after the foreclosure? The bank. 
Now that bank has to worry about cutting the grass, making sure it is a 
presentable property, providing security if necessary. What might 
happen if somebody started squatting on the property--which is starting 
to happen. Or drug gangs started invading the building? Now it is a 
banker's problem, not one they signed up for but one they face.
  We can save the homes of 1.7 million families with this issue. The 
mortgages that are under discussion here were risky instruments. Too 
many lenders threw caution to the wind and they issued these subprime 
mortgages, no-doc mortgages, mortgages with stair-step rate increases, 
and a lot of people were sucked in and taken advantage of.
  The Mortgage Bankers Association and their cronies scoffed when we 
told them we were going to have even more foreclosures, but the number 
continues to grow. This is the cancer at the heart of this recession. 
This is what we have to address.
  This President has worked overtime with a Recovery and Reinvestment 
Act, putting money back into the economy, saving jobs, creating jobs. 
But we have to get to the heart of this housing crisis. We have to stop 
what has become a steady decline of neighborhoods and real estate 
values in America. It affects us all.
  The institutions that held billions of dollars of these mortgage 
assets began to fail. You remember the litany: Bear Stearns, Fannie 
Mae, Freddie Mac, Lehman Brothers, AIG. The global financial system 
started to melt down and it started with these bad mortgages. Then the 
American taxpayers were asked to provide $700 billion to bail out 
institutions, just like the ones I have named. Lending dried up at the 
banks across America. Businesses had to cut back. Millions of American 
workers have lost their jobs.
  In my home State of Illinois, we were losing on average 1,200 jobs a 
day--a day. Unfortunately, that continues. We think we are starting--
starting to turn the corner but ever so slightly.
  Trillions of dollars in savings of workers and retirees were wiped 
out. It happened to everybody, everybody who was in an investment with 
a 401(k) or IRA or even a pension plan. Eventually, even safe mortgages 
were put at risk. It started with subprime mortgages. Now it is 
starting to spread. Credit Suisse now estimates that 8.1 million 
mortgages could fail in the next few years. It is not over. What does 
that represent? One out of every six homes in America could face 
foreclosure.
  When I gave this speech a year ago and called for this measure, 
people came to the floor and said: Durbin, you are exaggerating. It is 
not that bad. It is going to get well. People will be fine.
  That has not happened. Just the opposite has happened.
  It does not have to be this way. Many of these mortgages can be 
slightly modified and people can stay in their homes. The banks can 
still profit and families can still have a place for a future. If we 
can save these homes, the value of the assets based on these mortgages 
could regain much of their value. The institutions that hold billions 
of dollars of these assets, such as Citigroup, JPMorgan Chase, Bank of 
America, Wells Fargo, and many others could return to full health more 
quickly. Confidence might return to the financial system. The American 
taxpayers would get their money back much earlier from the institutions 
we bailed out with hard-earned taxpayer dollars. Lending would ramp up 
at a more rapid pace. Businesses might feel more confidence.
  The banks have said all along we don't need any change in the law, we 
will take care of this problem. Look what has happened. As they 
promised us they would take care of it, they didn't. More and more 
homes went into default and face foreclosure because they won't sit 
down and make the deal. Why wouldn't they? If they face $50,000 in 
losses on these foreclosures, if they have all these new obligations, 
at the end of the day why wouldn't they sit down?
  I will tell you why. For many of them, they don't want to concede the 
fact that they created this crisis. Second, many of them believe that 
at the end of the day Uncle Sam and the taxpayers of America will ride 
to the rescue, buying these mortgage securities, taking care of these 
banks, saving them after the bottom falls out of the real estate market 
and housing market in America. What an awful outcome, that all these 
families would have to go through all this suffering, that all these 
neighborhoods would have all these problems, so at the end of the day 
the banks that made the original bad mortgages would be rescued. That 
must be what they are thinking.
  The groups that are leading the charge against me on this are 
familiar names on Capitol Hill: The Mortgage Bankers Association, the 
people who brought us this wonderful subprime mortgage crisis, they 
oppose my bill; the Financial Services Roundtable, the biggest names in 
financial services in this Nation, the ones who have had their hands 
out for Federal money, oppose this idea of helping people facing 
foreclosure; and the American Bankers Association. What a 
disappointment. What a disappointment that a great association such as 
that, representing so many good banks, would not even sit down at the 
table to discuss this provision. It is a source of great disappointment 
to me because, as a Congressman and Senator, I have worked with them on 
so many issues. I have never found them more unyielding and 
unreasonable than on this issue.
  They say: Don't worry about it, Senator, we are experts. We are going 
to handle it. Don't tell us what we need to do.
  Many of those same banks are the first in line when it comes to 
Federal money. In effect, they have said we have created these rotten 
mortgages in the first place. Then we sliced them up into securities 
and sold them to investors all over the world as though there were no 
risks involved, although we knew better. They tell us we made billions 
of profits on the backs of homeowners, and then we took billions more 
from the taxpayers when the mortgages went bad, but don't make us solve 
the crisis. The Mortgage Bankers and American Banking Association says: 
We will handle it by ourselves. Time will take care of it.
  That was effectively the message of the leading banking associations 
when, for the last several months, we have begged them, pleaded with 
them to sit down and work this out. They have refused. They have been 
adamant.
  The Independent Community Bankers of America and the National 
Association of Federal Credit Unions--a group which I always supported 
in the past--they have had a little different message. They said: We 
didn't cause this crisis. Why should we be part of any plan to solve 
it?
  We tried lengthy negotiations to address their concerns. We told them 
this solution will help the economy, will help their borrowers, and 
basically help their clients. And they just will not buy it.
  I can tell them this. It is time for Congress to act and I hope we 
can muster the courage and find the votes, although I know it is going 
to be hard, hard to imagine that today the mortgage bankers would have 
clout in this Chamber, but they do.
  They have a lot of friends still here. They are still big players on 
the American political scene. They have said to their friends: Stay 
away from this legislation. Do not vote for it.
  Some of them will follow their lead. Not everyone has walked away 
from this responsible solution. The amendment which we will vote on a 
little later this week has the support of CitiGroup, the Center for 
Responsible Lending, and many other leading homeowner advocacy groups 
such as the AARP, the Leadership Council on Civil Rights, the Consumer 
Federation of America, and dozens of other groups.

[[Page 10671]]

They have worked with me to craft a responsible, reasonable proposal to 
give lenders a clear incentive to work hard to keep families in their 
homes.
  The amendment I am going to offer will make a modest change in the 
Bankruptcy Code with a lot of conditions. It will not apply across the 
board. In the past, some of my colleagues have understood the need for 
action but have been uncomfortable with some of the original language. 
So let me be clear. This amendment is very different. This amendment 
limits the assistance in bankruptcy to situations where lenders are so 
intransigent that they are unwilling to cooperate with the two primary 
foreclosure prevention efforts already underway, the Obama 
administration's Homeowner Assistance and Stability Plan, and the 
congressionally created HOPE for Homeowners Refinancing Program, which 
this bill will greatly improve.
  I am not going to go into further detail, but I want to say to my 
colleagues in the Senate and those who follow this debate, this is not 
the first time I have come to the Senate floor in the 13 years I have 
served to raise issues involving the exploitation of American 
consumers. I can recall the bankruptcy reform debate, had that a few 
years back, and I offered a simple amendment. Here is what it said: If 
you, as a lender, are guilty of predatory lending practices--in other 
words, if you have violated the law in the way that you have suckered 
in people to sign up for the mortgages, then you cannot show up at the 
bankruptcy court and ask that court order the person in bankruptcy to 
pay you. Your hands are not clean. You are a predatory lender.
  At that time, many years ago, opposing my amendment was Senator Phil 
Gramm of Texas. Phil Gramm of Texas and I have an opposite political 
philosophy. He is a very articulate and a very smart man, and he was 
debating me. Do you remember what he said during the course of the 
debate? He said:

       If the Durbin amendment passes--

  This is about 8 years ago.

     if the Durbin amendment passes, that will be the end of 
     subprime mortgages.

  Think about that. If 8 years ago we would have put an end to these 
subprime mortgages with that amendment, would we be in the mess we are 
in today? Well, perhaps, but perhaps not. We called the amendment for a 
vote. The amendment said the banks that were guilty of predatory 
lending could not recover in bankruptcy, and I lost by one vote. One 
vote.
  I thought to myself so many times as this recession has unfolded how 
it might have been different if somebody had stood up at that moment in 
time, just one more Senator for consumers across America. This will be 
another test. Who is going to win this debate, the mortgage bankers, 
the American Bankers Association, or the consumers across this country? 
The flight attendant on that flight, a single mom with three kids, her 
one asset in life is her home, and she is about to lose it? All she 
wants is a chance to renegotiate that mortgage and no one will sit down 
and talk with her. They would rather see her go all the way through 
default and foreclosure. It is an outrageous situation. It is repeated 
over and over and over.
  We will have this debate this week. I hope this amendment can 
prevail. We are going to work hard to make sure we do everything we can 
so that it passes.
  Then next week we are going to take up the credit card issue. We will 
be back with our friends in the banking industry. The American people 
know a lot about credit cards, and they know what this industry has 
done. The President said in a meeting last week: This is another 
industry that is entitled to make a profit but not entitled to exploit 
America's families and consumers. He is right. This will be a real test 
of my colleagues in the next few weeks in the Senate. First, we come to 
mortgage foreclosure, and then when it comes to credit cards, as to 
whether we are going to stand up on the side of working people in 
America, families struggling to get by, struggling with debt, who need 
someone to speak up for them, we can do that in the Senate. I sincerely 
hope we do.
  I yield the floor.
  The PRESIDING OFFICER. Expressions of approval and disapproval are 
not permitted.
  The Senator from Ohio is recognized.

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